Online Advertising Gets Boost in China

BEIJING -- Online advertising, which has gained traction in China in recent years, may be one of the few sectors to benefit from the country's sharp economic slowdown, as companies here look for more cost-effective ways to plug their products.

Ad-industry executives and analysts say the need to trim costs, while still trying to woo customers, could cause the online, or digital, portions of companies' ad budgets to grow, giving a boost to a market that has grown rapidly but remains puny compared with its size in the U.S.

"The economic crisis is...prompting a lot of our clients to rethink their marketing spending," says Karl Cluck, a Shanghai partner at Mindshare, a media-buying unit of WPP PLC, which has worked with clients including Nike Inc. and Motorola Inc. in China. There is "a lot more interest" in digital advertising, he says, especially for marketers of youth-oriented products.

China already boasts the world's largest population of Internet users, not to mention the most mobile-phone subscribers. But companies in China allocate 5% or less of their ad budgets to the Internet, depending on the estimate, compared with more than twice that share for companies in the U.S.

That has been changing, as young Chinese consumers gain more market clout and companies become more comfortable with the Internet in China. Nielsen Co. estimates that online ad revenue in China in the third quarter grew 42% from a year earlier to 3.72 billion yuan ($541 million).

That rate was more than double the growth in spending on television, newspaper or magazine advertising.

Ling Xiao Tong, center, a winner of Coke Zero's online 'Be Bond for a Day' contest.

Online video sites like Youku.com and Tudou.com are getting big advertising clients, including Samsung Electronics Co., Mazda Motor Corp. and Nike's Converse Inc.

Marketing collaborations between brands and Chinese Web platforms also are becoming more common.

Last month, Coca-Cola Co. did an Internet campaign for its Coke Zero line, asking users of Xiaonei.com, a social-networking site owned by Beijing-based Oak Pacific Interactive, to submit photos to show why they deserved to be the next James Bond.

Winners received a "day of James Bond," including a ride in a helicopter and an Aston Martin sports car.

The near-term outlook for online ads in China isn't entirely positive. Big advertisers in the auto and real-estate sectors are already feeling the effects of the slowing economy, and if overall spending falls sharply, online media will feel a hit.

Jason Brueschke, a Citigroup analyst in Hong Kong who covers China's Internet market, says the impact of China's slowing growth over the next three quarters may be greater than people realize. Even if marketing budgets being drawn up now are strong, "it doesn't mean the budgets will actually get spent," he says.

In a deep downturn, Mr. Brueschke says, marketers will need to choose the most valuable advertising, which is still television. Indeed, China Central Television, the monopoly state broadcaster, last month took in $1.4 billion for 2009 in its annual auction of prime-time commercial spots, a year-to-year increase of 15%.

Shaun Rein, founder of Shanghai-based consulting firm China Market Research, sees the CCTV auction as a positive sign of advertiser sentiment. The auction shows "ad prices are still going up in China," he says. "With most companies that we've worked with in China, they're keeping their marketing budgets kind of stable," but looking for ways to get more bang for their ad dollars through channels like the Internet.

Mr. Cluck projects that the Internet's share of some companies' ad budgets in China could increase by a percentage point over the next year. "That's where customers are going to be," he says.

That means that even if the overall ad pie shrinks, Internet media will have a greater share of the total, and be well-positioned for any rebound.

Citigroup's Mr. Brueschke says money being spent for online advertising will more likely be allocated to bigger established Internet companies like Sohu.com Inc. or Sina Corp., rather than edgier sites like the video-sharing Web sites that have gained popularity in recent years.

This happened during the Olympics; after the Games, China's top two Web portals posted much stronger growth while other large Chinese Internet companies, including Tencent Holdings Ltd. and Netease.com Inc., underperformed relative to expectations.

(the wall street journal)